Your no-nonsense introduction to CSRD compliance and reporting
In just a few months, over 50,000 companies will be required to submit their first CSRD report for their 2024 data. Is your company one of them? Here's what you need to know.
The upcoming Corporate Sustainability Reporting Directive is a game-changer in the ESG reporting landscape. The breadth and depth of this annual submission is unprecedented, requiring over 50,000 EU and non-EU companies to submit comprehensive ESG reports. While the roll-out of the mandate will be in stages, by 2029 we'll see companies all over the world (and from every type of industry and market) affected by this standard if they hold any significant operations in Europe. While the CSRD presents a great challenge for companies to hurry up and comply with this ominous task (including >1,200 questions and a double materiality assessment), compliance presents incredible opportunities for business expansion and access to sustainability-linked finance, positioning companies as industry leaders.
CSRD origin story
Who needs to report and when?
CSRD Submission Components
Make CSRD work for you
CSRD Origin Story
The Corporate Sustainability Reporting Directive (CSRD) is the latest initiative coming out of the European Union, a reporting and compliance framework meant to standardize sustainability reporting across companies and propel companies towards more transparent and accountable business practices. It essentially aims to apply best practices from the financial accounting world to the non-financial accounting world. This could very well be the jump-start that the world of sustainability needs in order to make meaningful headway in the "making an actual difference" department that it has longed to do over decades.
The predecessor of CSRD is known as the NFRD, or the Non-Financial Reporting Directive. Across the CSRD guidelines and descriptions, the NFRD shows up quite often-- specifically in showing the (ideally) smooth transition from NFRD to CSRD and the different stages of its implementation.
Who Needs to Report and When?
The good news is that the rollout of the CSRD is divided between many years and stages. The slightly less good news is that it's pretty complicated to determine where your company may fall. The key here is to determine when your company must start reporting, for which year of data, and get a head start on the process well before then (If you ask us, we'd recommend at least one year in advance).
The infographic below outlines the phased timeline for compliance with the CSRD.
This phased approach ensures a structured compliance rollout, starting with large public companies and gradually including smaller enterprises and non-EU companies.
CSRD Submission Components
A company's CSRD submission will be composed of the following components:
Answers to Up to 1100 Questions (both qualitative and quantitative) that detail the impact of the company on the three ESG pillars: Environment, Social, and Governance. These questions are pulled from a set of standards called the "European Sustainability Reporting Standards (ESRS)" that have been developed specifically for the CSRD reporting framework; they reflect EU policies, while also building on and contributing to international standardization initiatives. Within these questions, companies will report on their identification of climate-related risks, measures and strategies to manage the identified risks, long-term sustainability goals and targets, and more, as well as their ESG metrics.
The standards are comprised of 12 "topical standards", mainly divided into the specific categories of the three ESG pillars, as well as two cross-cutting standards that are required for all companies to complete. Down the road in 2026, sector-specific standards will be published that companies will also have to include in their disclosures.
2. The Double Materiality Assessment: Once considered a "nice to have" but not mandatory in the non-financial disclosure world, the double materiality assessment now the cornerstone for companies reporting under the CSRD. This assessment identifies which of the 12 topics (or sub-topics [or sub-sub topics]) are relevant to the reporting company, based on its impact on ESG categories and how climate and sustainability create risks and opportunities for the company.
Example: a food manufacturing company that sources freshwater fish will find the "Biodiversity and Ecosystems" topic material for their reporting, as their operations significantly affect the sea biome. In tandem, the company may face climate change risk, such as changes in water salinity affecting fish harvest. These changes could impact their supply sources, potentially leading to financial repercussions or necessitating a business pivot to adapt to new conditions.
3. Third Party Assurance and Verification: To ensure the accuracy and reliability of the reported data, CSRD submissions require external verification. Initially, companies must provide limited assurance, which involves a moderate level of scrutiny by auditors to confirm the absence of material misstatements. Over time, this will transition to reasonable assurance, demanding a more comprehensive review and higher confidence in the reported information. External auditors play a critical role in this process, assessing compliance with the CSRD standards and providing an independent opinion on the data's accuracy. This step not only bolsters the credibility of the report but also aligns companies with the directive's broader goals of transparency and accountability.
4. The Report Format (iXBRL format): The CSRD report submission must be prepared in the Inline XBRL (iXBRL) format, a specific digital format to ensure that the data is machine-readable. This format has been used in financial reporting until now, and it is the first time it is being used for any ESG regulations. This marks a big step in the ESG reporting world, and will also allow companies to more seamlessly integrate sustainability reporting with their financial reporting systems.
Make CSRD Work for You
Navigating the complexities of the Corporate Sustainability Reporting Directive (CSRD) can seem daunting, but with the right approach, it can become a powerful tool to drive your business forward. Here’s how to make CSRD work for you:
1. Bolster your Reputation as a Leader in the Field
A well-crafted CSRD report not only fulfills regulatory requirements but also positions your company as a leader in responsible business practices. By transparently disclosing your sustainability initiatives, achievements, and future goals, you can build a reputation as a company that is committed to making a positive impact on society and the environment. This reputation can attract top talent, loyal customers, and long-term investors who prioritize corporate responsibility. Additionally, being seen as a proactive and ethical player in your industry can help you forge valuable partnerships and collaborations.
2. Engage Stakeholders with Transparent Communication
Transparency is key to building trust with your stakeholders. Use your CSRD report as a communication tool to showcase your commitment to sustainable practices. Clearly articulate your sustainability strategy, goals, and progress, and be open about the challenges you face. Engaging stakeholders—be it investors, customers, employees, or the broader community—in your sustainability journey fosters a sense of shared purpose and can enhance your brand reputation.
3. Turn Compliance into Competitive Advantage
While meeting CSRD requirements is mandatory, the way you leverage this reporting can give your business a strategic edge. Use your sustainability disclosures to drive impact marketing by highlighting how your initiatives positively influence both the environment and your bottom line. Demonstrating the financial benefits of your sustainability practices, such as cost savings from reduced resource usage or enhanced product design that minimizes environmental impact, can attract investors and customers alike. Additionally, a strong CSRD report can lead to higher ESG ratings compared to your competitors, positioning your company as a market leader committed to continuous improvement and innovation in ESG performance.
4. Align with EU Taxonomy for Green Capital Access
The CSRD's alignment with the EU Taxonomy opens up opportunities to tap into the growing pool of green loans and sustainability-linked finance tools. Demonstrating compliance with EU Taxonomy standards can make your company more attractive to investors seeking to finance environmentally and socially responsible initiatives. This not only provides access to capital but also aligns your financial strategies with broader sustainability objectives.
Fast-Track your CSRD submission with AI Assistance
If understanding the intricacies of the CSRD feels overwhelming, you are not alone. That's why ECO-OS offers the CSRD Navigator, an AI-powered tool designed for navigating the complexities of CSRD reporting with ease and confidence. Automate key stages of CSRD reporting and save your brainpower for tasks that really need it. Learn more and request a demo at https://ecoos.co/csrd.
Conclusion: Embrace the CSRD Opportunity
In much the same way that financial reporting was regarded as a burden initially before it quickly helped companies unveil strategic opportunities, the CSRD is not just a regulatory burden; it’s a strategic opportunity. By aligning with these new standards, companies can build their reputation, engage more effectively with stakeholders, and gain a competitive edge. Early adopters of the CSRD will find themselves at the forefront of the ESG revolution, leading the way in sustainable practices and attracting green capital from investors. Companies that embrace the CSRD will not only comply with regulations but also position themselves as leaders in corporate transparency and sustainability.
Given the timeline of the reporting requirements, it is crucial to take action early on to ensure timely and accurate compliance. Leveraging AI tools (like the ECO-OS CSRD Navigator) can significantly speed up the process, providing efficient and effective solutions for handling the extensive data and complex assessments required by the CSRD. Prepare now and make the CSRD work for you by harnessing the power of technology and positioning your company for long-term success.
Glossary
Corporate Sustainability Reporting Directive (CSRD): The CSRD is an obligatory reporting framework enacted by the European Parliament that applies to certain companies with operations taking place in the European Union. The mandate requires companies to report on specific ESG metrics, conduct a double materiality assessment (considering both the impact of the company on the environment and the impact of environmental issues on the company), and undergo third party assurance to verify the accuracy and reliability of their ESG disclosures.
ESG (Environmental, Social, and Governance): A comprehensive framework used to evaluate a company's commitment to sustainable and ethical practices. ESG encompasses three key areas: Environmental factors, such as a company's carbon footprint, resource usage, and environmental stewardship; Social factors, including employee relations, community involvement, and human rights; and Governance factors, which assess corporate leadership, transparency, ethical behavior, and stakeholder engagement. ESG criteria help stakeholders understand and evaluate a company's long-term sustainability and ethical impact on the world, guiding investment and operational decisions.
Double Materiality Assessment: Evaluates not just how the company’s operations affect the broader environment and society, but how external environmental and social issues may impact the company's financial performance and reputation. The CSRD mandate requires companies to report only on ESG issues deemed material, supported by their double materiality assessments. This approach provides a comprehensive understanding of risks and opportunities essential for navigating today's business landscape.
The Non-Financial Reporting Directive (NFRD): The NFRD is an obligatory reporting framework enacted by the European Parliament that applies to certain companies with operations taking place in the European Union. The NFRD was enacted in 2016 and replaced in 2024 by the Corporate Sustainability Reporting Directive (CSRD).
Third Party Assurance: The verification and validation of your sustainability report by an independent and qualified external auditor. The review process can be conducted to examine your data, methodologies, and disclosures against established standards, frameworks, or principles (e.g. the Carbon Disclosure Project (CDP), Corporate Sustainability Reporting Directive (CSRD), and many more). There are two different levels of assurance that can be received, limited (lower cost but less rigorous) and reasonable (more thorough and provides a higher level of confidence in the ESG data).
Sustainability finance tools (or sustainability-linked finance): A variety of financial instruments that take ESG factors into account when determining more attractive loan conditions or new investments. A sustainability-linked loan (or ESG-linked loan) is one example of this, where the terms of the loan are linked to the borrower's score on ESG indicators, including carbon reduction targets. Both the terms and indicators are tailored to the specific industry of the borrower.
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